A Report

on

“Performance Analysis of Small cap Equity Mutual

Funds: Time Series Analysis”

Neha

2017-19 Batch

Submitted in partial fulfillment of the requirements of

PGDM Program at

Jaipuria Institute of Management

Jaipur

1
 Declaration

I do hereby declare that this project entitled, “Performance Analysis of Small cap Equity

Mutual Funds: Time Series Analysis” AU Small Finance Bank at Jaipur has been completed

by me and it is an original work. This report is being submitted for fulfilling the requirement of

Post Graduate Diploma in Management as a Summer Training Project, at Jaipuria Institute of

Management, Jaipur.

It has never been submitted nor been published elsewhere.

(Signature)

Name of the student

Date:

Place: Jaipur

2
 Certificate of Originality

Date:………………

To Whomsoever It May Concern

This is to certify that the Summer Internship Project Report titled ________________________,

submitted by Mr/Ms________________, represents an original work done by the student

mentioned herein and has been submitted in partial fulfillment of the requirements of the PGDM

Program (2017-19 Batch).

Name and Signature of Faculty Guide

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 Table of Contents

Executive Summary ...................................................................................................................................... 5

Chapter- 1 Introduction ................................................................................................................................. 7
Chapter – 2 Organization Overview ........................................................................................................... 27
Chapter – 3 Industry Analysis..................................................................................................................... 33
Chapter – 4 Research Methodology ............................................................................................................ 39
Chapter – 5 Findings and Conclusion ......................................................................................................... 50
Chapter – 6 Suggestions to the company .................................................................................................... 51
Chapter – 7 Learnings from SIP ................................................................................................................. 51

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Executive Summary

India is facing problem while investing in Mutual funds because Indians think it is highly risky

and complicated investment avenue. With most of the population lying in the age group of 18-60

years of age, India is considered as a young economy. People of India are no longer satisfied

with the rate of returns they get on various traditional mode of investments like fixed deposits,

properties etc. where several does not yield the required liquidity of funds and investing directly

in share market or equity possess high risk for untrained investor, mutual fund present

themselves as the most efficient derivatives.

Mutual fund is a tool to park your savings by mobilizing your money to invest in different

markets and securities, in synchronization with your investment goals. In other words, through

investment in a mutual fund, an investor can get access to markets that may otherwise be

unavailable to them and avail of the professional fund management services offered by an asset

management company.

This study is an attempt to analyze the performance of Small Cap Equity Funds of four major

players in the market considering the risk associated with them to conclude which fund is better

in the short term as well as in long term. For this I started with explaining what mutual fund is

and how mutual fund works and purpose of mutual funds and all the types of mutual fund

available in Indian market. Along with that Mutual Fund Analysis has been done with some

methods like PESTEL Analysis, SWOT Analysis and Porter’s five forces model.

To examine the performance of Small cap mutual fund schemes, four Schemes of different

AMCs were selected which are Aditya Birla capital, DSP Black Rock, ICICI Prudential and

Reliance Mutual Fund. For this evaluation daily Net Asset Value (NAV) of these schemes are

5
collected for period of five years from AMFI (Association of Mutual funds in India) website.

Two models Sharpe and Treynor are used to identify risk associated with these funds. NSE-

Nifty and BSE-Sensex are used as a benchmark for comparison purpose. Risk free return is taken

after considering risk free return yield on 91-day Treasury bills which is 6.52% at my study

period.

From the study it can be concluded that all the schemes of small cap funds are performing better

than its benchmark which is NSE Small cap index and well managed by their respective AMCs.

Now it all depends on the investor and his investment goals and its risk bearing capacity and

accordingly the schemes are available in the market to serve their needs. And to improve the

investment in an AMC the organization has to consider tax benefits and related knowledge and

present it before the customer.

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Chapter- 1 Introduction

The Indian stock market is considered one of the most prominent investment opportunities in the

world as India is a growing economy. India with its large population i.e. second largest in the

world present a pool of consumers consuming products and services which makes it a vibrant

economy. The market capitalization of BSE is 2.3 trillion dollars as on April 2018 – among the

top 10 in the world and its growth rate is faster than most markets. The rise of any economy

totally depends on the investments and policies made by the people and the government in the

country, well it is the same case in India.

With most of the population lying in the age group of 18-60 years of age, India is considered as a

young economy. people of India are no longer satisfied with the rate of returns they get on

various traditional mode of investments like fixed deposits, properties etc. where several does

not yield the required liquidity of funds and investing directly in share market or equity possess

high risk for untrained investor, Mutual Fund present themselves as the most efficient

derivatives. They maintain high liquidity of funds and divide the risk for the investor. Well

investors some time confuses Mutual Funds with high risk low return derivatives but in recent

times performance results of mutual funds have shown exception performance of various funds

in the market.

Financial System of India has four components: Financial market, Financial Institutions,

Financial service and Financial Instruments. Every component plays an equally important role in

smooth functioning for transfer of funds and allocation of funds.

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Financial market: Like every other market financial market is a place where people trade and

exchange of financial securities like equities, bonds and precious metals etc. and derivatives like

futures and options for a small amount of transaction cost.

Financial Institutions: A financial institution is a company which conducts financial transaction

like giving loans, receiving deposits and investment. Financial institution includes commercial

banks, investment banks, Insurance companies, brokerages, Asset management companies etc.

Financial service: Financial services are the services provided by financial institutions which

includes managing money like ATM services for withdrawal of money, locker services,

investment advisor, credit services etc.

Financial Instruments: Financial instrument is defined as the contract which have some

monetary value, and which can be traded in the financial market. It may be cash or currency,

evidence of ownership (bonds, shares etc.)

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Concept of Mutual funds

Investors with common financial goals pool the funds

Investors get mutual funds in the proportion of their

contibution to the pool

The money is then invested in capital market in various

securities

Any capital loss/gain is then transfered to the investors in

the proprotion of their holdings

Now a day there are many investment avenues available with the investors which can convert

their savings into a healthy investment. Investors can invest into Bank Deposits, Fixed Deposits,

Real estate, Share markets and other derivatives. But Mutual funds as a Financial Institution

offer financial services as well as financial instruments to the investors and helps in boosting the

financial markets.

Mutual fund as the name suggests is a pool of funds from various investors who share common

financial goal. The money thus collected is then invested by experts in capital market in

instruments such as shares, debentures etc. The income then earned through the appreciation of

these assets are then distributed to its holders in the ratio of their holdings. Thus, mutual funds

9
offer an ideal investment option for a lay man as they offer a diversified risk over different assets

giving high returns to its stake holders. A mutual fund is a type of investment that pools the

savings of investors who are sharing a common financial goal. The money which is collected

through pooling is now invested on their behalf by the Asset Management Company (AMCs) in

Capital market like Shares, debentures and other securities. The income earned through this

investment in terms of capital appreciation and dividend received is shared by unit holders in

proportion to number of units they own. Mutual Fund is categorized into three different class:

Equity, Debt, and Hybrid.

History of Mutual Fund

To a common man of this country mutual fund may sound appealing, risky and confusing but

they might not understand the true meaning and scope of mutual fund. Mutual fund is simply a

professionally managed investment fund that directs the investors’ money into securities based

on the risk profile chosen by the investor. This is like giving the driver seat of your car to some

professional who knows it better that most of the individuals.

To some mutual funds may sound like a new concept but the existence of such funds goes way

back to 1890s when they were initially introduced by the united states government as an

investment option, they were initially a closed ended funds with a fixed number of shares and

were limited in quantity but since then mutual funds have evolved just like any other market and

fund. The first open ended mutual fund was introduced nearly 30 years later in united nation of

America in 1920s as redeemable shares by Massachusetts investors trust which is now operated

and managed under the name of MFS investment management.

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Well in those days the closed ended mutual funds gained high popularity as compared to the

open-ended ones. In the year 1929 95% of the traded mutual funds were closed ended in the

USA market as compared to the 5 % share of the open ended mutual funds. The total mutual

fund industry accounted for over 27 billion dollars at that time.

Major reforms in the history of mutual funds came after the 1929 wall street market crash; some

of them are listed below:

1. The securities act of 1933: This require all the financial instrument including mutual

funds that are to be sold to public as investment are to be initially registered with the

security and they also have to submit a prospectus to the investor regarding all the details

of risk and return associated with their investment.

2. The securities and exchange act of 1934: This requires the issuer of various instruments

to submit periodic and regular reports to the investors and to the commission as well.

3. The revenue act of 1936: This clarify about the taxation on returns of such investment.

4. The investment company act of 1940: This provides the guidelines for the governing of

mutual funds.

These reforms were initially introduced in American stock market which were later accepted by

all the markets of the world to protect the interest of the investors. Today the mutual fund market

is over 40 trillion dollars out of which 18.9 trillion-dollar market lies in United Nations of

America making it the largest market for such securities.

As on 31st March 2018, the average Asset Under Management of Indian mutual fund market is

over 3 trillion dollars which again makes it a dominant market for such securities with huge

scope of growth in future.

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History of Mutual Funds in India

Mutual fund was introduced to Indian market in the year 1963 with the formation of unit trust of

India as the initiative by the reserve bank of India and the government of India. Though the

growth of mutual funds initially was slow, but the picture changed with the entry of non-UTI

players into this market in the year 1987.

The history of mutual funds in India can be divided in following phases:

• First phase (1964-1987)

The unit trust of India (UTI) was established by the government of India under the act of

parliament to operate under the regulation of reserve bank of India. In the year 1978 the

regulation of UTI was transferred from Reserve Bank of India to The Industrial

Development Bank of India.

The first scheme launched by UTI at the time of its formation was unit scheme in the year

1964.by the end of the year 1988, a total of 6700 crore assets came under the

management of UTI.

• Second phase (1987-1993)

This phase is the face changing phase of mutual fund industry in India as it was the time

when the public-sector funds entered the market. During this period several non-UTI

public sector funds by firms such as SBI, LIC and other corporations entered the market.

By the end of the year 1993, a total of 47000 crore worth of assets came under the

management of mutual funds in India.

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• Third phase (1993-2003)

The growing market and trust of people persuaded various private sector organizations to

introduce their funds into the market. The first private sector fund was launch by Kothari

Pioneer in July 1993. In the same year SEBI was appointed the task to establish

regulations to protect the interest of the investors. The mutual fund industry is now

managed under the regulation act of SEBI 1996.by the end of jan’03 the mutual fund

industry held a mammoth of 127000 crore of assets with 33 operations mutual funds

floating into the market.

• Fourth phase (2003-now)

The mutual fund market has been expanding ever since the entry of private sector funds.

By the end of 2004 there were more than 400 schemes with around 30 such funds

managing more than 150000 crores of assets under them.

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Types of Mutual Funds:

OPEN ENDED
FUNDS
BASED ON
STRUCTURE
CLOSED ENDED
FUNDS

INDEX FUNDS

DIVIDEND YEILD
FBNDS

EQUITY
DIVERSIFIED
FUNDS
EUITY FUNDS

THEMATIC FUNDS

SECTOR FUNDS

ELSS

MUTUAL FUNDS
DEBT ORIENTED
FUNDS
BALANCED
FUNDS
EQUITY
ORIENTED FUNDS

LIQUID FUNDS

GLIT FUNDS
BASED ON
OBJECTIVITY

INCOME FUNDS

DEBT FUNDS FMPs

FLOATING RATE
FUNDS

ARBITRAGE
FUNDS

MIPs

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Mutual Funds Can Be Classified as Follows:

On the basis of structure:

1. Open-ended funds: in these types of funds investors can buy and sell such funds at any

given point of time as per their convenience. Example-L&T Emerging Business Funds

etc.

2. Closed ended funds: This kind of funds only raise money once from the investors, they

may or may not be traded like stock in the share market among various investors. These

funds offer relatively low liquidity as compared to the open-ended funds. e.g.-Reliance

Capital Builder Funds Etc.

On the basis of investment objectivity:

1. Equity funds: These types of funds invest the pool of money in various equity and equity

related schemes for growth. These schemes generally take about 3-5 years to yield

significant returns on their investments. The short-term hindrance of the market generally

does not affect the fund in the long run which makes them a suitable option to invest for

long term capital gain. these funds are further classified as the follow:

• Index funds: In such funds some key market index like Nifty or Sensex are tracked.

• Equity diversified funds: A total of 100% investments are made in stock of

diversified companies.

• Dividend yield funds: These are same as diversified equity funds but here

investment is made in stock of companies that yield a high dividend.

• Thematic funds: Investment is being made in some theme like power companies etc.

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 • Sector funds: 100% investment is made in equity of some specific sector like FMCG

sector etc.

• ELSS: these are tax saving schemes (equity linked saving schemes).

2. Balanced funds: These funds maintain a balance between the debt and equity in their

investments agendas. They lie between the debt funds and equity funds in terms of both

the risk and the returns. They are a perfect investment option due to their moderate risk

and good returns. These are further divided as the follows:

• Debt-oriented funds: These funds invest more than 35 % of their ratio in debt

and the rest in equity. These are high on stability and low on returns.

• Equity-oriented funds: These invest high on equity i.e. more than 65 % of the

total value. These are comparatively low on stability and high on returns.

3. Debt funds: These are the kind of instruments that invest only in debt. They invest 100

% of the funds in fixed income yield instruments such as bonds, debentures, commercial

papers, certificate of deposits and call money. These are a good option for those who

expect a constant and slow growth with very low risk in returns. These are again further

classified as the follow:

• Liquid funds: In such funds, 100% investment in made in money market

instrument specially call money market.

• Gilt funds: These invest 100% in government securities only .no other debt

instrument is entertained.

• Floating rate funds: As the name suggests, they invest only in debt instruments

with floating interest rate.

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 • Arbitrage funds: These generate profits through arbitrage opportunities between

the money and the capital market. When such opportunities are absent, a higher

percentage i.e. more than 75% is invested in the money market.

• Gilt funds: These invest a total of 100% in long term government securities only.

• Income fund: These invest most of their funds on long term debt papers.

• MIPS: MIP or Monthly Income Plans generally invest 70%-90% in debt

instruments and the rest in equity.

• FMPS: Fixed Income Plans invest in debt instruments whose maturity is same as

of the proposed plan.

Other funds

There are various other types of funds such as:

1. Real Estate Mutual Funds: These are schemes that have to invest in real estate or other

assets directly or indirectly, that are permissible under SEBI Regulation Act. A minimum of

35% of their corpus should be there in physical assets. Being close ended funds, these have to

be listed on stock exchange.

2. Commodity Funds: These mutual funds schemes invest in physical commodities like food

crops, spices, industrial metals, fibers, precious metals like gold and silver (gold acts a

separate fund too), energy products etc. The investment objective of these funds would

specify the commodity it chooses to invest.

3. International Funds: These funds invest in outside India Markets by including foreign

securities in their portfolio such as Equity shares of companies listed outside India, American

and Global Depository Receipts, Debt of companies outside India etc.

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4. Fund of Funds: These funds invest in other mutual fund schemes. It does not hold any

security in its portfolio, rather other funds that are chosen to be being in line with its

investment objective. A fund of fund can invest in the mutual fund of same house or another

mutual fund house

5. Exchange Traded Funds: These are those mutual fund schemes that are open ended but still

their units are traded on stock exchange and post NFO they can only be traded on the stock

exchange where it is listed. Further issue of new units and redemption of existing units can

be done by mutual fund directly but only in large lots which is defined as creation units.

6. Infrastructure Debt Funds: These are schemes that primarily invest in debt securities of

infrastructure companies. A minimum of 90% of the total corpus should be invested in

specified securities. The rest can be invested in Equity Shares of infrastructure companies or

money market securities. They are close ended schemes that invest with a minimum tenure of

5 years.

Investment Strategies into Mutual Funds:

I. Systematic Investment Plan (SIP):

These are plans under which a fixed sum of money is invested under some fixed scheme

at a specific interval. The investor gets lower unit when the nav is high and vice versa.

This concept is called Rupee Cost Averaging (RCV). The major principle applicable in

such an investment plan is the compounding effect which yield high returns on such a

small regular investment.

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 Some of the benefits of investing in SIPs are:

➢ Mutual fund tracks the Indexes and always aim to maximize its alfa (α)

{(α) is defined as the excess returns from the returns of its benchmark index.}

➢ One of the most important benefit of SIP is it takes out the risk of market timing and

add on the benefits of the power of compounding

➢ Money is near to liquid. It will transfer to your bank account in T+2 days

➢ SIP will not dig a big hole in your pocket

II. Systematic Transfer Funds (STP):

Under the systematic transfer funds, the investor invests some amount in fixed rate debt

fund and the returns from the debt funds are transferred to some mutual fund scheme as a

regular basis. This is somehow same as the previous mode of investment.

III. Systematic Withdrawal Plan (SWP):

These are plans when investor wants to withdraw from their investment on a regular

basis. Mutual funds make it possible for the investor to withdraw their money at any

point of time as per the investor’s desire.

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Risk v/s returns:

risk

sectorial funds

equity funds

index funds

balanced funds

debt funds

liquid funds return

As per the rule of risk and return trade off, the risk and return are proportional to each other in

this case also, as the chances of high return from a mutual fund increases so increases the risk

associated with the mutual fund.

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Advantages of Investing in Mutual Funds:

PORTFOLIO
DIVERSIFICATION

CHOICE OF PROFESSIONAL
SCHEMES MANAGEMENT

LOW
TRANSACTION
MUTUAL RISK REDUCTION
COST
FUNDS

TRANSPERANCY LIQUIDITY

FLEXIBILITY

• Diversification: Investment in a mutual fund scheme is made in a number of securities

that correspondingly offers the benefits of diversification to the investor. Accordingly,

the risk associated with the investment is divided in a huge portfolio and thus it is

minimized. This is mainly because if one share is not doing good than another one can

supplement its effects.

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• Convenience: Mutual fund are very convenient to invest. One simply has to fill the

application form and within two days from the processing his investment is started. Even

the investor can easily track the performance of the fund through android application

from play store named as My Cams or simply by giving a missed call at a number from

the registered mobile no. of the investor.

• Higher Returns: The returns in the mutual fund schemes are comparatively higher that

the potential investment options like Bank FD/RD, post office savings schemes etc. but

provided the investor should have patience and retain his investment for some time.

• Professionally managed: Qualified investment professionals who seek to maximize

returns and minimize risk monitor investor’s money. The fund managers of the schemes

are highly experienced professionals that have a tremendous amount of knowledge and

insights about when to buy a stock and more importantly when to sell any stock.

• Low Cost: To start a SIP as little as a monthly investment of Rs. 500 is enough. For

lump sum investment only Rs. 5000 is needed in first transaction and thereafter only Rs.

1000. Therefore, it is very economical for investor to invest in Mutual Fund Schemes.

• Disciplined Investing: When a investor start a Systematic Investment Plan (SIP) in a

mutual fund, he is committing to invest a certain amount on the same day of the month,

consistently for a certain number of months/ years. Such a commitment instills in the

person discipline to take a productive action towards future.

• Less/ No lock in period: Majority of mutual funds schemes are free from any lock in

period. Therefore, liquidity and flexibility are a very important advantage of mutual fund

schemes. If any investor is in urgent need of money than he can simply fill the

redemption form and the ideal time is t+3 days that means the date of filling up of form +

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 3 days after it and the investor’s money at the prevailing Net Asset Value will be

credited to his account.

• Safety and Transparency: Fund managers provide continuous information about the

current value of the investment, along with their strategy and outlook, to give a clear

picture of how investments are doing. Thus, transparency is maintained in Mutual Fund

Schemes.

Limitations of Investing in Mutual Funds:

INVESTOR HAVE NO
CONTRL OVER COST

MUTUAL
FUNDS

DIFFICULTY IN
NO CUSTOMISATION OF
SELECTION OF SUITABLE
PORTFOLIO AVAILABLE
SCHEME

1. Investors have no control over the price or cost of mutual fund in the security market

hence there is high chance of uncertainty in the minds of the investor.

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 2. There are no customizations available in the portfolio as per the needs of a investor.

There are some common portfolios out of which a investor has to select as per his or

her demand.

3. There are lots of similar schemes available in the market claiming to be the best, the

investor gets confused in selection of ideal fund that might serve his or her purpose.

Structure of Asset Management Company

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Sponsor

Any corporate body which initiates the launching of a mutual fund is referred to as “The

sponsor”. The sponsor is expected to have a sound track record and experience in financial

services for a minimum period of 5 years and should ensure various formalities required in

establishing a mutual fund.

Trustee

Sponsor creates a public trust and appoints trustees. Trustees are the people authorized to act on

behalf of the Trust. They hold the property of mutual fund. Once the Trust is created, it is

registered with SEBI after which this trust is known as the mutual fund. A minimum of 75% of

the trustees must be independent of the sponsor to ensure fair dealings.

Trustees appoint the Asset Management Company (AMC), to manage investor’s money.

Custodian

A custodian’s role is keeping custody of the securities that are bought by the fund manager and

also keeping a tab on the corporate actions like rights, bonus and dividends declared by the

companies in which the fund has invested.

Asset Management Companies

Trustees appoint the Asset Management Company (AMC), to manage investor’s money. The

AMC in return charges a fee for the services provided and this fee is borne by the investors as it

is deducted from the money collected from them. The AMC’s Board of Directors must have at

least 50% of Directors who are independent directors. The AMC has to be approved by SEBI.

The AMC functions under the supervision of its Board of Directors, and also under the direction

of the Trustees and SEBI.

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Registrars and Transfer Agents

The registrar and transfer agents are appointed by the AMC’s. AMC pay compensation to these

agents for their services. They carry out the following functions like Receiving and processing

the application forms of investors Issuing unit certificates Sending refund orders giving approval

for all transfers of units and maintaining records Repurchasing the units and redemption of units

Issuing dividend or income warrants.

Investment Advisors

Investor Advisors carry out market and security analysis. Advising the AMC to design its

investment strategies on a continuous basis. They are paid for their professional advice regarding

fund investment on the average weekly value of the fund’s net assets.

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Chapter – 2 Organization Overview

Vision

To be the world’s most trusted retail bank and coveted employer, that is admired as the epitome

of financial inclusion and economic success, where ordinary people do extraordinary things to

transform society at large, thereby guaranteeing Trust, Confidence and Customer Delight.

Mission Statement

To build one of India’s largest retail franchise by 2022 that is admired for:

• Making every Customer feel Supreme while being served

• Aspiring that no Indian is deprived of banking

• Bias for action, dynamism, detail orientation and product and process innovation

• Globally respected standards of integrity, governance and ethics

• Being an equal opportunity employer, providing a collaborative and rewarding platform

to all its employees

AU Small Finance Bank is a commercial Bank which has started its journey as AU financers

(India) Ltd in 1996 And converted into small finance bank on the 19th of April 2017. It holds

27
469th position among fortune 500 companies in India, with annual revenue of 314 million US

dollars and asset value of 1.41 billion dollars.

The company was founded by Mr. Sanjay Agarwal (MD and CEO of AU small finance bank) as

a private limited company and hit an IPO as a bank on 29th June 2017. On its first day of trading,

the stock rose 51% to be the most expensive bank in India based on price-to-book value. Due to

its existence as a Vehicle Finance company, almost all the loans made by AU Small Finance

Bank were secured, unlike other banks which are having unsecured loans due to their presence in

microfinance. As of now, this bank has 301 bank branches with a plan of expanding over 430

branches by the end of this year. Along with this, the bank has around 115 asset centres as of

now.

AU stands for:

• Inclusiveness

• Progress for all

• Simplicity

• Action and Urgency

TAGLINE

“Chalo aage Badhein” is a very strategic and carefully crafted tagline included in their logo

which represents togetherness. The tagline of AU Small Finance Bank states that no matter what

28
your is, we are always be there to help you to achieve it. The simple idea is that we will walk

with you all the way in your journey.

Traded as : BSE: 540611

NSE: AUBANK

Industry : Banking, Financial services

Founded : 1996

Headquarters : Jaipur, Rajasthan, India

Area Served : India

Key People : Mr. Mannil Venugopalan (Chairman)

Mr. Sanjay Agarwal

Total Equity : ₹ 17,655 crores (US$ 2.63 billion) (2018)

No. of employees : 1140

Website : https://www.aubank.in/

When AU bank is called as AU Financiers

• The symbolic meaning of AU is Gold which is valuable across all culture. Formerly

when AU bank is being called as Au financer it means that the company who finance

through their remarkable services and spread happiness in the lives of customer.

• The logo of AU financiers was like Swastik which is very auspicious in relation to

culture and believes to bring good omen.

• The logo of AU financiers has blue and red color. Blue symbolizes of confidence, trust

and loyalty and unity and red defines strength, courage and passion

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SWOT ANALYSIS of AU small Finance bank

SWOT analysis is a tool which helps to analyze the strengths, weaknesses, Opportunities and

Threats to an organization.

Strengths

• AU small finance bank has a strong presence in under penetrated segments like vehicle,

MSME and small-scale enterprise finances

• It has more local market knowledge and customer centric product structure to maintain its

margin in long run

• Company’s low-cost model helps in reducing their operational cost while maximizing

profit at the same time

• It holds 496th rank in fortune 500 companies in India

• Fastest growing bank in the country

• Holds a very good stake in rural market

• Interest rate on deposits is very good in this bank which is 6.75%

Weakness

• Not very popular among urban population at present

• Customer support right now is not very good in AU small finance bank

• Loan interest rate is comparatively very high

• Very high credit risk is there as they were into vehicle financing and small business

financing before becoming into a fully-fledged bank

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Opportunities

• Expand into the urban areas as well as rest of the rural areas

• It can finance large businesses also because it reduces their credit risk

• It can reduce its loan interest rate so that more people can take loan and grow

• High level of autonomy can help them in faster decision making

Threats

• Change in any rule and regulation from RBI

• Improvement in technology and customers are shifting toward technology

• Competition is increased by more Financial technology companies like Paytm, Tez etc.

• More private banks are entering into the market

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Hierarchical Structure of AU Small Finance Bank

CHAIRMAN

BOARD OF DIRECTORS

MANAGING DIRECTOR

ADDITIONAL MANAGING DIRECTORES

DEPUTY MANAGING DIRECTOR

ASSITANT MANAGING DIRECTOR

GENERAL MANAGER

DEPUTY GENERAL MANAGER

ASSITANT GENERAL MANAGER

SENIOR PRINCIPLE OFFICER

PRINCIPLE OFFICER

OFFICER GRADE-1

OFFICER GRADE-2

ASSISTANT OFFICER

OFFICE ASSISTANT

32
Chapter – 3 Industry Analysis

Indian mutual fund industry has seen many phases since the inception of unit trust of India which

the first mutual fund of India was set up in 1963.

• 1st Phase (1964-87) – The growth of Unit Trust of India (UTI)

• 2nd Phase (1987-93)- Entry of public sector in Mutual Funds

• 3rd Phase (1993-96)- Entry of private sectors

• 4th Phase (1996-99) – Growth and SEBI Regulation

• 5th Phase (1999-2004) – Emergence of Large and Uniform Industry

• 6th Phase (2004-2018) – Consolidation and Growth phase

Analysis of Mutual fund industry is done based on PESTEL Analysis, SWOT Analysis, and

Porters’ Five Forces Model.

PESTEL Analysis

PESTEL Analysis is a tool which helps us to analyze all the macroeconomic factors of an

economy which affects the industry or an organization.

Political Factors

Political factors are the government related factors which affect the particular industry of an

economy. For example, it includes Tax policy, change in government, business and trade

restrictions made by government etc.

• Political instability influences the investment pattern of investors as the prices of

securities is fluctuating

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 • Government trade and investment policies directly affects the foreign investment in our

country

Economic Factors

Economic factors are the factors which determines the country’s performance that directly

impacts the industries in that economy. For example, Gross Domestic Product (GDP), Foreign

Direct Investment (FDI), Inflation rate etc. comes under Economic factors.

• In India the percentage of working population is raising so there is more injections in the

form of investments being done by people

• Inflation is also a major factor which affects the investment behavior in an economy

because investment will always be done in the securities which is giving returns more

than inflation

• Per capita income as well as the growth rate and GDP also decide the investors investing

preferences

• World Trade Organization (WTO) has laid down common rules for its member countries

for the smooth flow of investments and funds

Social Factors

Social factors are the factors which scrutinize the social environment of the market and

determine the cultural trends, demographics of the economy population analytics etc.

• Globalization has smoothened the flow investment and economies are growing mutually

• People are now aspiring to maintain same living standards after retirement, so it is

increasing the investment done in an economy for meeting future goals

34
 • Rural market is left untapped due to their high dependence on agricultural income which

is again uncertain

Technological Factors

Technological factors are the factors which leads to innovations which impacts the operations of

an industry and make them easier. Technology also helps in reducing cost by producing goods

and services in lower cost and less time.

• Indian financial markets made it easier for the foreign investors to investigate the Indian

market and returns of Indian investment avenues

• Because of technology the communication aspect is improved, and all the legal

framework have become easy to implement and track

• Technology has indirectly increased the competition and there is intense competition in

the Market

• It has reduced the paper work by becoming cashless and more customer centric

Environmental Factors

Environmental factors include aspects such as sustainability, delivering the product ethically to

the customer, social responsibility etc. These factors have arisen due to the scarcity of the natural

resources with relation to the unlimited human wants.

• Expected to maintain robust growth rate as compare to other developed and developing

countries.

• As the income of the people will increase, lending and savings will increase leading to

increased business for the financial service sector.

35
Legal Factors

Legal factors include safety and health issues, standards of advertising, the various laws and

rights of consumers and the following of the government rules and regulations.

• Change in FDI and FII inflow restrictions, entry exit barriers for foreign banks in India,

EXIM regulations, change in Basel norms etc. affects the market scenario

• SARFAESI Act, 2002, has enhanced the legal framework.

• This act will reduce lengthy legal processes and creates the balance of power between

creditor and banks and refining the credit discipline.

Porter Five Forces Model-

This Model was developed by Michael E Porter in the year 1979 with the objective of providing

a framework for analysis of the industry and formulation of the business strategy. A general

representation of the model is shown below.

36
1. Threat of the New Entrants: If we talk about the mutual fund industry, the threat for

new entrants is potentially very low. This is because, SEBI and AMFI are continuously

forming more and more rules and regulations for the new entrants in the industry.

Another reason for the same is that, the amount of capital required to set up an Asset

Management Company is very large, and one can’t afford that much of capital

investment. One more reason is the competitive strength of the existing firms. The

existing mutual fund companies are performing outstanding in their work thus it will be

very difficult for a new company to stand in a competition with these already established

companies.

2. Threat of the substitutes: Substitute products are those that are different by physical

nature but provide the same benefits as the original product. As there are a number of

alternatives available to the investors to invest their corpus, the threat of the substitutes is

very high. The major objective for any investor to invest in mutual fund investments is

the capital appreciation and there are many other options available to the investor to

achieve their objective such as equity, gold, real estate, derivatives, options, futures.

3. Bargaining power of the suppliers: In mutual fund industry, the bargaining power of

the suppliers is low because the mutual fund industry in India is governed by the laws

and regulations of SEBI and AMFI thus the suppliers does not have any power to rule

over, they have to simply follow the norms and regulations prepared by these two

governing bodies. The suppliers in this industry include financial institutions, asset

management companies, major corporate banks etc. Their prime objective is to generate

reasonable return for their potential customers which they have to do under the

guidelines set by SEBI and AMFI. Thus, they don’t enjoy high bargaining power.

37
4. Bargaining power of customers: The bargaining power of customers in case of mutual

fund industry is very high. This is because they are variety of substitutes available to the

investors. Now a days with the significant growth of financial services providers, there

are lot of investment avenues available. Thus, investor enjoy a high bargaining power.

Secondly, the cost of switching is again too low, so investors can easily switch in case

they are dissatisfied with the services of the prospective service provider. Fund managers

have to perform extraordinarily well to retain their existing investors with them.

5. Rivalry between the firms: Rivalry between the existing firms in mutual fund industry

is very high. This is mainly because the products or the schemes offered by different

asset management companies are same and homogenous in some or other way. Thus

there is cut-throat competition prevailing in the industry. The reason behind this is

significant growth in the mutual fund market, thus every company is now moving into

this sector and thus increasing the competition rapidly.

38
Chapter – 4 Research Methodology

To examine the performance of Small cap mutual fund schemes, four Schemes of different

AMCs were selected which are Aditya Birla capital, DSP Black Rock, ICICI Prudential and

Reliance Mutual Fund. For this evaluation daily Net Asset Value (NAV) of these schemes are

collected for period of five years i.e. from 1st May 2013 to 30th April 2018 from AMFI

(Association of Mutual funds in India) website.

NSE- Nifty and BSE-Sensex are used as a benchmark for comparison purpose. Risk free return is

taken after considering risk free return yield on 91-day Treasury bills which is 6.52% at my

study period.

Need for the Study

• To understand the contribution done by Mutual Fund Industry for the development of

Indian economy in general

• To understand the relationship between risk and return associated with the small cap

mutual fund scheme under consideration as compared to other investment avenues

• To study and comparative analysis of the mutual fund schemes offered by Aditya Birla

capital, DSP Black Rock, ICICI Prudential and Reliance Mutual Fund and identify the

best among them

39
Objectives of Study

• To analyze and evaluate the past performance of small cap equity mutual funds

• Comparative analysis of different Asset Management Companies based on the

performance of their small cap equity mutual funds

• To do risk and return analysis of the small cap equity mutual funds

Review of Literature

There is a tremendous existing Literature is available on Mutual Funds. Over these years, it has

gained a lot of attention of Researchers and academicians and investors and became their focal

point of research. And because of this various measures and models has been developed to

evaluate the same.

• Debasish (2009) studied the performance of elect schemes of mutual

funds supported risk and come models and measures. The study lined the

amount from April 1996 to March 2005 (nine years). The study discovered that Franklin

Templeton and UTI were the most effective performers and Birla Sun life, HDFC and

LIC mutual funds showed poor performance.

• Prabakaran and Jayabal (2010) evaluated the performance of investment trust schemes.

The study conducted is on a sample of twenty-three schemes that were chosen basing on

the priority given by the respondents in Dharmapuri district in a very survey and covers

the study from April 2002 to March 2007. The study used the methodology of Sharpe

and Jensen for the performance analysis of mutual funds. The results of the study found

that thirteen schemes out of twenty-three schemes elect had superior performance than

40
 the benchmark portfolio in terms of Sharpe quantitative relation, thirteen schemes had

superior performance of Treynor quantitative relation and fourteen schemes had superior

performance consistent with Jensen live.

• Sondhi and Jain (2010) examined the market risk and investment performance of equity

mutual funds in Republic of India. The study used a sample thereof three}6 equity fund

for an amount of 3 years. The study examined whether high beta of funds

have really made high returns over the study amount. The study additionally examined

that open-ended or shut terminated classes, size of fund and therefore

the possession pattern considerably have an effect on risk-adjusted investment

performance of equity fund. The results of the study confirmed with the

empirical proof made by fama (1992) that prime beta funds (market risks) might

not essentially made high returns. The study discovered that the class, size

and possession are considerably determined the performance of mutual

funds throughout the study amount.

• Garg (2011) examined the performance of high 10 mutual funds that was elect on the

idea of previous years come. The study analyzed the performance on the

idea of come, variance, beta in addition as Treynor, Jensen and Sharpe indexes. The

study additionally used Carhart’s four-factor model for analyze the performance of

mutual funds. The results discovered that Reliance Regular Saving Scheme Fund had

achieved the very best final score and geographic region Robeco below had

achieved rock bottom final score within the one-year class.

41
Research Design

The Research Type is descriptive which is quantitative in nature. The goal of this descriptive

research is to describe the data and its characteristics. This research takes a broad picture into

account and studies various aspects and different variables related to mutual fund investments.

The data has been collected from AMFI website. Also after describing the data sone analytical

tools has been used for further analysis.

Analytical Tools used:

Two models: Sharpe and Treynor Model has been used to calculate the risk associated with the

funds.

1. Sharpe Model: -

This ratio is developed by Nobel Laureate William F. Sharpe in order to measure risk adjusted

performance.

= (𝑹𝒑 − 𝑹𝒇)

Where Rp = Returns of the scheme

Rf = Risk free returns (91 days return of treasury bills is taken which is 6.8%)

σ = Standard deviation of daily NAV

This model tells us whether the returns are from smart investment decision or due to excess risk.

Greater the ratio better is the risk – adjusted performance of the fund.

42
 2. Treynor Model: -

This ratio is developed be Jack Treynor which is also called reward to volatility ratio. It adjusts

the returns for systematic risk.

=(𝑹𝒑 − 𝑹𝒇)

Where Rp = Returns of the scheme

Rf = Risk free returns (91 days return of treasury bills is taken which is 6.8%)

β = Market Risk factor

Higher the Treynor ratio, the better was the performance of the fund. It measures the returns

earned more than that which could have been earned on a riskless investment.

Products under Study

1. Aditya Birla Small Cap Fund- Growth- Direct Plan

Schemes NAV 3 months 6 months 1 years 2 years 3 years 5 years

ABSCF 44.682 -32% 11% 28% 40% 28% 30%

2. DSP BlackRock Small Cap Fund - Direct Plan – Growth

Schemes NAV 3 months 6 months 1 years 2 years 3 years 5 years

ABSCF 69.338 -37% 7% 37% 61% 41% 35%

43
3. ICICI Prudential Small cap Fund - Direct Plan – Growth

Schemes NAV 3 months 6 months 1 years 2 years 3 years 5 years

ABSCF 29.92 -13% 18% 21% 33% 18% 20%

4. Reliance Small Cap Fund - Direct Plan Growth Plan - Growth Option

Schemes NAV 3 months 6 months 1 years 2 years 3 years 5 years

ABSCF 49.2901 -35% 16% 46% 59% 40% 39%

Investment Objective: The Scheme aims to generate long term capital appreciation by investing

mainly in equity and equity related securities of Small cap companies and secondary objective is

to generate consistent returns by investing into debt and money market securities.

Analysis

Returns
80%

60%

40%

20%

0%
3 month 6 month 1 year 2 year 3 year 5 year
-20%

-40%

-60%

Aditya Birla Sun Life Small Cap Fund - Growth - Direct Plan
DSP BlackRock Small Cap Fund - Direct Plan - Growth
ICICI Prudential Smallcap Fund - Direct Plan - Growth
Reliance Small Cap Fund - Direct Plan Growth Plan - Growth Option

44
It is clear from the figure that in 3 months ICICI Prudential Small cap fund has performed better

as compared to other funds whose returns are more than 20% negative. In case of 6 months

returns again ICICI Prudential Small cap fund has proven itself to be outperformer among its

competitor funds.

In case of one year returns we can see that here Reliance Small cap fund has outperformed

among its competitors whereas DSP BlackRock Small cap fund here has generated better

performance as compared to its own past performance. Now when we move towards 2 year

returns DSP BlackRock Small cap fund has outshined here and Reliance Small cap fund

followed the same by only 2% difference.

In three years DSP BlackRock Small cap fund outshined followed by Reliance Small cap fund.

And in five years we can see that Reliance Small cap fund has beaten all other small cap funds.

So, there is a slight difference between Reliance small cap fund and DSP BlackRock small cap

fund in the long run. Maximum returns were given by Reliance Small cap fund while minimum

returns were given by ICICI Prudential Small cap fund over the period of five years.

45
 Standard Deviation
20
18
16
14
12
10
8
6
4
2
0
Aditya Birla Sun Life Small Cap DSP BlackRock Small Cap Fund ICICI Prudential Smallcap Fund Reliance Small Cap Fund -
Fund - Growth - Direct Plan - Direct Plan - Growth - Direct Plan - Growth Direct Plan Growth Plan -
Growth Option

This figure shows that the highest value of Standard deviation is of DSP BlackRock small cap

fund which is 17.174 whereas the lowest value of Standard Deviation is of ICICI Prudential

small cap fund which is 5.32. This means that the most volatile fund amongst them is DSP

BlackRock small cap fund which means it has the highest amount of risk associated with it.

Whereas the ICICI Prudential small cap fund has the least amount of risk associated with it.

46
 Beta
0.014

0.012

0.01

0.008

0.006

0.004

0.002

0
Aditya Birla Sun Life Small DSP BlackRock Small Cap ICICI Prudential Smallcap Reliance Small Cap Fund -
Cap Fund - Growth - Direct Fund - Direct Plan - Growth Fund - Direct Plan - Growth Direct Plan Growth Plan -
Plan Growth Option

According to the above beta calculations it is observed that out of four schemes again DSP

BlackRock small cap fund has the highest beta value which shows its riskiness and among the

remaining ones the ICICI Prudential small cap fund is of lower risk category.

47
 Sharpe Ratio
0.03

0.025

0.02

0.015

0.01

0.005

0
Aditya Birla Sun Life Small DSP BlackRock Small Cap ICICI Prudential Smallcap Reliance Small Cap Fund -
Cap Fund - Growth - Direct Fund - Direct Plan - Growth Fund - Direct Plan - Growth Direct Plan Growth Plan -
Plan Growth Option

As per the comparison of the Sharpe ratio of various undertaken funds, it is observed that

reliance small cap fund yields the highest return with the same level of risk as compared to the

DSP black rock fund which yield the lowest returns undertaken the same level of risk even

though its rate of return is more than other available funds.

48
 Treynor Ratio
45

40

35

30

25

20

15

10

0
Aditya Birla Sun Life Small DSP BlackRock Small Cap ICICI Prudential Smallcap Reliance Small Cap Fund -
Cap Fund - Growth - Direct Fund - Direct Plan - Growth Fund - Direct Plan - Growth Direct Plan Growth Plan -
Plan Growth Option

As per the analysis of the Treynor ratio of the various funds undertaken for the study, it is

analyzed that the reliance small cap fund yields the highest return in access to the risk-free

returns followed by ICICI prudential fund then Aditya Birla small cap fund and at last the DSP

black rock fund which has the lowest level of returns over the risk-free returns.

49
Chapter – 5 Findings and Conclusion

➢ Investors whose risk appetite is more can choose DSP Blackrock small cap fund which

include high risk as well as high returns.

➢ If the investor wishes to take moderate risk, then he/she can invest in Reliance small cap

fund whose returns are higher then other small cap funds whereas the risk is lower as

compared to DSP Blackrock small cap fund

➢ And if the investor is at the side of lower risk and consistent returns the he/she can

choose ICICI Prudential small cap fund

From the study it can be concluded that all the schemes of small cap funds are performing better

than its benchmark which is NSE Small cap index and well managed by their respective AMCs.

Now it all depends on the investor and his investment goals and its risk bearing capacity.

Limitations of the Study

• There are more than 30 AMCs and it was not possible to compare all the small cap

equity mutual funds

• Some of the schemes has started few years so less data available for those schemes

• There was a time constraint in doing this study

• The research is limited to few schemes available in the market

50
Chapter – 6 Suggestions to the company

• The organization should first assess the risk appetite of the investor then suggest the

schemes accordingly

• Au bank has collaborated with all major AMCs so now the salesman of the company

getting confused between all the schemes and ended up selling only one or two schemes

• The bank officers should also tell the tax benefits to the investors so that they show some

more interest in investing in mutual funds

Chapter – 7 Learnings from SIP

• How to deal with customers

• Query handling of customers

• Learned how to convince customers to buy your products

• Deep knowledge of Mutual funds, Life insurance and IRDA Certifications

• Approaches to pitch their wealth products

51
References

• www.aubank.in

• https://www.sciencepubco.com/index.php/ijet/article/download/8924/3021

• http://bmdynamics.com/issue_pdf/bmd110248-01-09.pdf

• www.nseindia.com

• www.bseindia.com

• www.amfiindia.com

• www.mutualfundindia.com

• http://www.thesij.com/papers/IFBM/2014/May/IFBM-0203230101.pdf

• https://www.borjournals.com/a/index.php/jbmssr/article/download/1955/1286

• www.scribd.com

• www.wikipedia.com

52